Download This PaperDigging into the Channels of Bunching: Evidence From the Uruguayan Income Tax
72 Pages Posted: 20 May 2019 Last revised: 16 Nov 2020
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Digging into the Channels of Bunching: Evidence From the Uruguayan Income Tax
Tax Bunching at the Kink in the Presence of Low Capacity of Enforcement: Evidence from Uruguay
Date Written: June 29, 2020
Abstract
Based on detailed administrative tax records, we implement a bunching design to explore
how individual taxpayers respond to personal income taxation in Uruguay. We estimate
a very modest elasticity of taxable income at the first kink point (0.06) driven by
a combination of gross labour income and deductions responses. Taxpayers use personal
deductions more intensively close to the kink point and underreport income to the tax authority.
Our results suggest that the efficiency costs of taxation are not necessarily large in
contexts characterised by limited deduction opportunities. Policy efforts should be directed
at broadening the tax base and improving enforcement capacity
Keywords: Personal Income Taxation, Tax Bunching, Elasticity of Labour Income, Deductions Behaviour, Underreporting, Developing Economies
JEL Classification: H21, H24, H30, J22
Suggested Citation: Suggested Citation
